Rogue Traders: Jerome Kerviel

Who are you Monsieur Kerviel? Answer the question.Judge to Jerome Kerviel at the beginning of his trial

Former Societe Generale trader Jerome Kerviel went on trial in 2010 for fraud, breach of trust and forgery following the bank's loss of around €4.9 billion as a result of his trading activity.

You could say that Nick Leeson, the original rogue trader whose actions caused the collapse of Barings Bank in 1995, represented the post-Big Bang era, when many banks were still struggling to get to grips with a complete transformation of the finance industry. Kerviel, meanwhile, can be seen a rogue trader for the years that followed the financial crisis.

He was a product, or perhaps a casualty, of a time when banks had been accused of dealing in too-complex products, borrowing too much money, and not being regulating strictly enough on a institutional or industry-wide basis.

Jerome Kerviel

Kerviel worked at Societe Generale as a second-tier trader charged with hedging risks taken by others. But, after making a significant profit from an unauthorised trade relating to market movements after the 7th July London bombings, he began to engage in other adventurous trades that were beyond the scope of his job, hoping to impress his superiors.

These trades were often in exotic derivatives and involved sums that not only surpassed his own trading limits, but eventually the market capitalisation of the whole bank.

Kerviel was successful at first, but soon his losses started to grow. Thanks to a knowledge of back and middle office workings, he was able to avoid regulatory procedures that would ordinarily have detected his unauthorised trades. He used techniques such as closing his trades just before alarms would be triggered and entering false trades into the bank's systems.

Kerviel's actions began to come to light when the bank's HR department realised he hadn't taken a holiday of more than a few days for eight months. This is a regulatory breach in banking, where staff are usually required to spend regular periods out of the office so that any unauthorised activity can be detected.

He talked his way out of having to take a break, but holiday queries were followed by further questions from the bank's compliance team and regulators that eventually revealed the extent of his failed trading positions.

Kerviel and his lawyers have argued, however, that Societe Generale was aware on some level of what he had been doing before this point, and only stepped in when they wanted to use his losses as a distraction from other larger losses it had suffered.

He received a degree of support from the French public and the media on this front - one television reporter said at the time of his trial that "there's a widely-held feeling [in France] that Jerome Kerviel was not a villain, but rather a victim of a system that encouraged greed and excessive risk-taking."

But it is hard to not see his actions - involving forging documents, hacking into Societe Generale's computer systems, and even creating a fake rugby-loving client - as wrongdoings on a personal level.

This was the attitude the French justice system took, which largely blamed him for the situation the bank found itself in. Kerviel received a prison sentence of five years (later reduced on appeal to three) and was banned for life from working in financial services.

He was also given a $6.7 billion fine to represent Societe Generale's losses. There was no expectation that he would repay this, but it served to underline the court's damning opinion of him and his actions. The French banking regulatory body, meanwhile, fined Societe Generale €4 million for failing to uphold its internal compliance procedures.

Like Leeson, Kerviel made no personal profit directly from his trades. While at Societe Generale, he seems to have led a relatively quiet life outside work, often going to visit his mother in Brittany.

He appears to have been motivated less by a desire for wealth and more by a wish to escape from his relatively lowly status at Societe Generale and from difficulties in his personal life, including the death of his father in 2006 and a marriage that collapsed a year later.

"Success was the thing I craved throughout my life, and the fear of failure keeps you going as much as that need for success," said Nick Leeson when commenting on Kerviel's actions at the time of his trial.

Though Kerviel would never become the star trader he wanted to be, he has now achieved a new life of a sort. Since leaving Societe Generale, he has written a book about his time in trading and begun a career as an IT consultant.

Describing himself on his Twitter biography, Kerviel doesn't mention his current role or his last one, choosing instead to use a quote to describe himself: "The present moment has an advantage over all the others: it belongs to us."

You get so far in you can't get outNick Leeson, commenting on Jerome Kerviel around the time of his trial

Newsletter

Follow Us

By traders, for traders, TraderLife offersinsight into the life of the modern-day trader. For those who aim to live life off the charts, we’ll provide informative, entertaining and aspirational content for traders to enjoy during those well-needed breaks away from the screens.